Understanding How “Accord and Satisfaction” Impacts Debt Collection

Suppose your store sells a vacuum to a customer. While processing the paperwork, the accounting department determines the consumer owes the store additional payment. The consumer claims that he gave the additional payment to the credit manager, who denies receiving it. The sales manager calls the consumer demanding payment. After several conversations, the consumer sends a check to your company for an amount less than allegedly owed. Furthermore, the consumer wrote on the check that it represents “full and final payment” for the debt. Your store deposits the check and later seeks the balance from the consumer through litigation. Will you prevail?

The doctrine of “accord and satisfaction,” codified by virtually every state through the adoption of the Uniform Commercial Code (“UCC”), means that disputed debt will be considered released if the creditor accepts lower payment from the debtor with the knowledge that the debtor made it to satisfy the debt. To trigger accord and satisfaction, the debtor must send payment in an amount less than what the creditor demands. The payment instrument (such as a check) must either have conspicuous notation or be accompanied by written communication stating that the payment is made as full and final satisfaction of the debt. If your business deposits the instrument, the debt will be deemed fully paid unless the creditor refunds the payment within 90 days. In the example above, the store would likely be barred from seeking the balance owed from the debtor.

Businesses can avoid debtors’ claims of accord and satisfaction by training those employees responsible for debt collection to recognize written statements that may trigger accord and satisfaction. Your office personnel should not deposit instruments that may be construed as triggering accord and satisfaction. Your sales staff should also be trained on how to reduce the possibility of debtors claiming accord and satisfaction defenses. In the example above, the credit manager did not clearly document the obligation to pay the amount owed. One factor in determining if accord and satisfaction applies is whether there is a clear obligation to pay the debt disputed. For example, a debtor could never succeed in using an accord and satisfaction defense to avoid paying a monthly car payment memorialized by a retail installment contract. Your sales staff should work diligently to confirm what the customer owes the company and obtain documentation of the debt before the customer takes delivery of the goods. Your company can use various instruments, such as promissory notes, payoff guarantees and title guarantees, to clearly convey the debtor’s obligation to pay the amount owed, thereby reducing the likelihood the debtor will prevail using an accord and satisfaction claim.

For help with your debt collection issues and efforts, please call us at 516-873-3000.